Starting up a culture of good corporate governance
In what The Economist has dubbed a “Start-Up Spring”, our region is experiencing a boom in the creation of small and medium enterprises (SMEs), with more than 19 million micro, small and medium enterprises in the Middle East and North Africa.
Despite their economic significance, the importance of corporate governance for smaller enterprises is often overlooked. The approach of many businesses is to grow first and think about governance later. However, start-ups and other SMEs face the same governance-related risks such as fraud or corruption as any other size of business. In certain situations, they can actually be more vulnerable to unethical behaviour in their rapid drive to become competitive.
Whether your company has five employees working out of a business incubator in the UAE, or 5,000 spread around the world, instituting good corporate governance can firstly make your company more resilient to risks; and secondly help you make better strategic decisions and grow faster. Corporate governance can help your business become more efficient, effective and resilient.
Start-ups have much to gain from introducing good governance processes, which in turn enables them to build trust with their stakeholders. According to Edelman, which publishes an annual study known as the Trust Barometer, the presence of trust can greatly help a business build better relations with its employees, withstand periods of uncertainty, and generate greater loyalty from its customers.
Fortunately, there are some simple things those at the helm of a start-up can do to help protect, as well as enhance, their business models:
1. Create an advisory circle
Even if your company is fledgling, you should consider establishing an informal advisory board. Unlike a traditional board of directors, this is more like a small circle of advisors to bounce ideas off and seek guidance from. Regardless of its lack of legal mandate, the creation of an informal board is a helpful way to formalise your strategic planning and decision-making processes.
2. Articulate your values and purpose
It is never too early to identify the kind of company that you want to be, and the purpose you wish to serve. To do so, document the values and principles that you expect your business to operate by, and the overarching reason that you established it in the first place – its purpose. From this, you can derive your company’s first “Vision Statement” and “Code of Ethics”, spelling out your goals and the ethical principles you aspire to uphold. This will help you yo attract the right type of people to join the organisation, influence strategic decisions and send a clear message to your stakeholders about the things you stand for, thereby building trust.
3. Lead by example
As the figurehead of most start-up companies, the founding chief executive must find ways to demonstrate that they have truly embraced the values set down for the organisation. This could be as simple as making regular statements at meetings that reiterate their importance, or forgoing business opportunities that are not consistent with the company’s ethical standards. What matters most is making it clear – internally and externally – that the values that have been articulated are genuine, and not just lip service.
4. Identify and understand risks
All start-ups should conduct a thorough risk assessment. This means identifying risks that could affect the company in the future, and ensuring that, wherever possible, plans are put in place to mitigate them. Potential risks to start-ups can be commercial, technological, regulatory, environmental or even political, and start-up founders should strive to identify these. A proper risk assessment helps you understand these challenges on the horizon, prepare for them as best as you can, and most importantly learn from them when they are experienced.
5. Learn from others
The good news for start-ups is that many companies have made the same journey before you. There is an abundance of information available that can help new enterprises put in place their own corporate governance frameworks. The Pearl Initiative has researched, written and published case studies of good corporate governance practices from across the region. Dubai SME and Hawkamah have published a comprehensive “Corporate Governance Code for SMEs” that is also available online. Take advantage of these resources to find ideas that are relevant to your business.
Many assume corporate governance is primarily the domain of large companies. From a regulatory perspective, this is understandable. After all, the potential systemic risks and destruction in economic value posed by governance failures involving large companies are usually far greater than those involving SMEs. However, risks are only one side of the equation. The clear business case is that better corporate governance is crucial to helping our smaller companies grow faster and stronger, and in the process create the jobs that our region so urgently needs. This means we all have a stake in ensuring our entrepreneurs and start-ups have the knowledge and desire to keep their houses in order.
With that in mind, my message to fellow entrepreneurs is this: It will never be as easy as it is today to establish a culture of transparency and accountability within your start-ups. Doing this from scratch is far easier than trying to change something that has spun out of control. Now is the time to set the right tone for your organisation, by putting an effective corporate governance framework in place that can deliver tangible benefits to your business and all its stakeholders.
Badr Jafar is the founder of the Pearl Initiative and chief executive of Crescent Enterprises
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Published: December 7, 2014 04:00 AM